Qatar Must Practice Energy Innovation To Grow Its Economy

Includes: GULF, MES
by: Mary Daniel

According to the International Monetary Fund, Qatar’s economic growth will slow next year as well as face an increased risk of lower oil and gas pricing. All this comes as a result of weaker global demand. Still, most agree the outlook is positive for this Middle Eastern nation rich in resources and land. Qatar is the world’s top liquified natural gas exporting economy, and as such, expanded at double-digit rates in 2011. Qatar also has plans to spend quite a bit on infrastructure in preparation for the 2022 World Cup. Still, the country cannot overlook external risks that reach as far as the euro zone crisis -- specifically, lower oil and gas prices and increased geopolitical tensions.

The Qatar government does have adequate finances and policies in place to dissipate any number of potential risks. Inflation is expected to average 2% in 2011, down from 2.5% in 2010. To continue developing the financial system and strengthen financial stability the government needs to close any regulatory gaps and grow the domestic land market. One of Qatar’s greatest assets is its land, unspoiled and undeveloped.

Now is a great time to invest in this Gulf nation if the opportunity was missed the first time around. The worldwide recession has provided a second chance to invest in this Middle Eastern market. The Market Vectors Gulf States Index ETF (NYSEARCA:MES) and the WisdomTree Middle East Dividend ETF (NASDAQ:GULF) both provide valuable exposure to Qatar. Both funds show the same measure of consistency along the trend and maintain similar risk ratings. MES and GULF are both heavily weighted in communications and financial services. Both funds provide opportune investment into this Middle Eastern nation.

Qatar is also working on growing its economy internally. In January Qatar Petroleum, the state-run energy company, signed an agreement with Exxon Mobil Corp (NYSE:XOM) to develop the Barzan gas facility at an estimated cost of $10.3 billion. Qatar Petroleum will own 93% of the project. Barzan is expected to produce 1.4 billion cubic feet of gas a day for domestic needs once completed in 2015. The company secured financing this month for a $7.2 billion syndicated loan at 2.19 percentage points over Libor. This new facility is a great economic move for Qatar.

For Qatar’s economy to continue growing and avoid stalling, the country will need to look further than its current natural gas wealth. Qatar should be spending as much money developing energy alternatives as it is to further grow their current business. Supply and demand for oil and gas is recently proving to be much too volatile to be the foundation for a growing economy. Innovation will determine Qatar’s future growth.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.